RetireJapan

2019 - We signed up for Gakushi hoken 学資保険 for our 1 year old daughter
2020 - I started understanding and investing in stocks
2021 - I'm sitting here realizing that 学資保険 is a pretty bad deal

I'm very glad I felt the urge to review it. We're going to cancel it tomorrow and put the money into her Jr. NISA account instead. With 学資保険, we're only going to get a about a 8% return over the course of 20 years. It looks like a horrible idea. I'm correct yes? Is 学資保険 basically a step up from a savings account for risk adverse parents?

Lawrence wrote: ↑Sun Sep 12, 2021 12:35 pm Is 学資保険 basically a step up from a savings account for risk adverse parents?

More or less. Some of them also include life insurance, but you could probably get term life insurance separately for less.

Taking advantage of Junior NISA gives you a better chance to grow the money, but returns are not guaranteed. If you understand and accept the risk of investing in the stock market, Jr NISA might be a better choice, if not, gakushi hoken might be better.

Personally we're trying to max out Junior NISA for our grangchildren before it ends in 2023 (I believe the contents of the account will then remain tax free until the children reach 18).

Like you we signed up for 学資保険 before getting into stocks. In the end we decided to keep the 学資保険. The returns aren't great, but the contributions are tax-deductible (so long as you're not over your limit for life insurance), it's a fixed payout, and it pays out if I die along the way. I've also maxed out my son's Junior NISA with all stocks, so this is the "bonds" part.

I did Gakushi hoken 学資保険 for both kids, but in 20 years, you will probably find that an education is twice what it costs today, and exceeds the Gakushi hoken 学資保険, so you should do both.

Gakushi hoken 学資保険 for guaranteed sum in 20 years, and J-NISA for the variable other half...

Lawrence wrote: ↑Sun Sep 12, 2021 12:35 pm With 学資保険, we're only going to get a about a 8% return over the course of 20 years. It looks like a horrible idea. I'm correct yes? Is 学資保険 basically a step up from a savings account for risk adverse parents?

8% over 20 years is less than inflation. Including the tax deduction, you get a better return, depending on your circumstances. Overall slightly better than just leaving it in the bank? Of course, the pressure to keep up with contributions may be valuable for those who do not normally save enough.

When we first had a child we got life insurance, but after about 5 years I figured we had enough in the bank that it wasn't really necessary. Cancer health insurance is something I do still pay for.

Thanks for the replies. We've decided to cancel it and move it into the Junior NISA fund instead as we haven't maxed that out yet. Our funds might be less diversified, but we could also do that within the Junior NISA account. It's great to hear everyone else's experiences.

I'm afraid you are not doing the calculation correctly.

1. The Gakushi hoken 学資保険 includes Term Life Insurance for 20 years. If you die, the full amount is paid out.
You would need to remove the Life Insurance Premium from the monthly contribution.
You would need to pay a separate Life Insurance Premium if you wanted to compare apples to apples.

2. You calculated that the return would be 8%, but that would be if you put the Full amount down on Day 1 and it grew at 8% per year. This is not the case.
The First payment grows for 240 months
The Second Payment grows for 239 months
...
The 120th Payment only grows for 120 months
...
The last payment only grows for 1 month.

Therefore, the Internal Rate of Return would be very different.

You can use the IRR function in Excel for regular payments, or the XIRR function for irregular payments, after taking out the Term Life premium to calculate the real rate of return on the investment.
240 Payments of your Monthly Premium
Followed by the 241 value would be Negative The Amount you receive at the end of the contract.

How much is your Monthly Premium and how much is guaranteed at the end?